Glossary of Terms

The information presented here is not intended as financial, investment, tax or legal advice and is provided for educational purposes only.
The return on an investment expressed as a percentage of the cost of the investment, paid in dividends or interest. A $1,000 bond that pays $50 in interest annually has a yield of 5.0%.
Yield Curve
A graph showing the relationship between the yields of bonds of the same credit quality but with different maturities. The yield curve can forecast turning points in the business cycle. Yield curves can be normal, flat or inverted. A normal yield curve shows lower yields for short-term bonds and higher yields for long-term bonds. A flat yield curve shows little difference between short- and long-term yields. An inverted yield curve shows higher yields on short-term bonds and lower yields for long-term bonds. Normal yield curves indicate a healthy and growing economy; flat yield curves indicate uncertainty about the direction of the economy; and inverted yield curves often precede economic contraction or recession.
Yield to Maturity (YTM)
The percentage rate of return paid on a fixed-income security if an investor buys and holds it to maturity. The yield to maturity factors in the price paid for the security — either a discount from or a premium to face value. If an investor pays a premium (more than face value), the yield to maturity will be less than the security’s coupon rate; if he buys it at a discount (less than face value), the yield to maturity will be greater than the coupon rate.